Terna Energy Trading doo v Revolut Ltd

This is my judgment on an application brought by the defendant against the claimant, by notice dated 8 December 2023, for reverse summary judgment, alternatively for an order to strike out the claim. The claim itself is for unjust enrichment, to recover the sum of €700,000 from the defendant. The defendant however says that the claim must fail for either or both of two reasons, both points of law essential to the claim. One is that the defendant has not been “enriched” for the purposes of the doctrine of unjust enrichment. The other is that, even if it has, the enrichment was not “at the expense of the claimant”, again for the purposes of that doctrine. In order to obtain reverse summary judgment, or an order striking out the claim, the defendant needs to be right on only one of these. It is not necessary to show that it is right on both.

The claim form was dated 21 April 2023, and sealed on 24 April 2023. The claim is, as mentioned above, for the restitution of €700,000, which was approximately £618,590 at the date of issue. The particulars of claim are also dated 21 April 2023. The defence is dated 22 June 2023, and the reply 25 August 2023. As I have said, the notice for the application with which I am dealing was issued on 8 December 2023. It is supported by the witness statement of Benjamin Fellows, who is the applicant’s solicitor. It is opposed by the witness statement of Lucas Moore, who is the respondent’s solicitor. Because this is a summary application, there is in fact very little factual dispute between the parties for the limited purposes of my decision.

The court’s jurisdiction to give summary judgment (either against the defendant in favour of the claimant, or vice versa) arises under CPR rule 24.3, which since October 2023 relevantly provides:

So far as concerns summary judgment, I was referred to the well-known decision of Lewison J (as he then was) in Easyair Ltd (t/a Openair) v Opal Telecom Ltd [2009] EWHC 339 (Ch) 16, endorsed by the Court of Appeal on a number of occasions, most recently in British Telecommunications plc v HMRC [2023] EWCA Civ 1412, [25]. In Easyair, the judge said:

In Elite Property Holdings Ltd v Barclays Bank plc [2019] EWCA Civ 204, a case where permission to amend a statement of case was in issue, Asplin LJ (with whom Hamblen LJ and Nugee J agreed) said:

Complex claims, cases relying on complex inferences of fact, and cases with issues involving mixed questions of law and fact where the law is complex are likely to be inappropriate for summary judgment: see Three Rivers District Council v Bank of England (No. 3) [2003] 2 AC 1 (HL) at [95] per Lord Hope. And, in relation to the possibility of future disclosure, the relevant question to ask is whether there are reasonable grounds for believing that disclosure may materially add to or alter the evidence relevant to whether the claim has a real prospect of success: Okpabi v Royal Dutch Shell plc [2021] 1 WLR 1294, [128], SC.

As for questions of law, it is not normally appropriate in a summary procedure (such as an application to strike out or for summary judgment) to decide a controversial question of law in a developing area, particularly because it is desirable that the facts should be found so that any further development of the law should be on the basis of actual and not hypothetical facts: see Altimo Holdings and Investment Ltd v Kyrgyz Mobil Tel Ltd [2012] 1 WLR 1804, [84], PC, Lord Collins. This approach was taken by Teare J, refusing summary judgment in an unjust enrichment claim, Marsfield Automotive Inc v Siddiqi [2017] EWHC 187 (Comm), [1], [35].

The statutory test on an application to strike out a claim is set out in CPR 3.4(2). This provides:

In addition, CPR Practice Direction 3A relevantly provides:

The court’s approach to a strike-out application is in many respects the same as in a summary judgment application: both are summary procedures for bringing a claim to an end. But, as Falk LJ (with whom Nugee and Warby LJJ agreed) said in British Telecommunications plc v HMRC [2023] EWCA Civ 1412,

Accordingly, an application to strike out a statement of case on the basis that there are no reasonable grounds to bring or defend the claim is usually decided on the assumption that the respondent will be able to prove the truth of the factual case it alleges: see eg HRH The Duchess of Sussex v Associated Newspapers Ltd [2020] EWHC 1058 (Ch), [33](2). Although an application for summary judgment does (as Falk LJ said) take into account the strength of the evidence available to the parties, that matters very much less in a case like the present, where the application is based on points of law, and the evidence filed on the application (including for this purpose the statements of case supported by statements of truth) gives credible colour to the factual allegations. In such a case, as Cockerill J said in Daniels v Lloyds Bank [2018] EWHC 660 (Comm), [49] (vi), disputed facts should generally be assumed in favour of the respondent to the summary judgment application. It is therefore necessary for me to set out relevant parts of the statements of case.

In the present case the respondent (the claimant in the claim) pleads in part as follows in the particulars of claim:

The applicant (defendant in the claim) pleads to this in its defence as follows:

The claimant’s (respondent’s) reply relevantly pleads:

The respondent is a Serbian company which sells energy on both domestic and foreign markets. The applicant is a financial services company, authorised by the Financial Conduct Authority as an “electronic money institution” or EMI, governed by the Electronic Money Regulations 2011 (SI 2011/99). These regulations were made in order to transpose Directive 2009/110/EC of the European Parliament and of the Council of 16 September 2009 into domestic UK law. An EMI can provide some services similar to those provided by banks, but not all of them. In return for money paid by a third party to the applicant for the account of one of its customers, the applicant provides “electronic money” to the customer, which can be used by the customer to make payments or purchase services.

On 4 February 2022, the respondent instructed its own bank, UniCredit Serbia, to pay €700,000 to an account with the applicant held by Zdena Fashions Ltd, an English company. Although initially frozen by anti-money laundering software, the credit was subsequently released to the account with Zdena Fashions Ltd, and entirely dissipated by a series of payments made over a number of hours. The respondent has brought no claim against its own bank, or against Zdena Fashions Ltd.

It is common ground that the respondent’s instruction to its bank to pay was induced by a so-called “authorised push payment fraud” by third parties. It appears that on 3 February 2022 at 1334 GMT an email was sent to the respondent by the head of trade at one of its energy suppliers, attaching an invoice for an advance payment of €1 million for energy supplies for that month, and containing the supplier’s bank details. However, at 1535 GMT the same day, the respondent received a further email purportedly from the supplier, stating that the bank details were wrong, and attaching a further invoice with new bank details. These details were for an e-money account with the applicant, as the IBAN for the account suggests (“GB09 REVO…”). At 1611 GMT the same day, a third email was sent to the respondent, this time from the (genuine) email address of the chief financial officer of the supplier, confirming the amended invoice and apologising for the “mistake”. The respondent says that unauthorised persons gained access to that email account and used it to send the confirmatory email. The applicant admits the descriptions of the emails, but not the particulars of the fraud and the nature of the mistake which the respondent made in giving the instruction. The applicant also denies that the mistake was a qualifying mistake entitling the respondent to make a claim in unjust enrichment.

It is necessary to describe briefly the payment mechanisms involved. This is not a case where A makes a payment to B using banknotes or coins, or even bank drafts. In modern commercial banking transactions, no such chattels change hands. Instead, accounts of customers with the same or, more likely, different banks are debited and credited to produce the impression that money has moved. But no money in fact moves at all. It is just a series of reciprocal credits and debits. As lawyers, at least, know, bank accounts do not actually hold money, or funds. Such accounts instead amount to a claim on the bank by the customer, a chose in action. At any one time, there is a single sum due from the bank to the customer (assuming that the account is in credit). The bank will discharge its debt to its customer, in whole or in part, by honouring the instructions of its customer to “transfer” all or part of its customer’s credit to the account of a third party with another bank.

It does this by agreeing with that other bank to a debit in its own account with that other bank (or a third bank – eg the Bank of England – at which both have accounts) and a corresponding credit to the third party’s account with that other bank (or the third bank, as the case may be): see Brindle and Cox (eds), Law of Bank Payments, 5^th ed 2017, paras 3-002 – 3.006. A bank (“A”) which has a corresponding relationship with another (“B”) will have an account with that bank. Bank B will refer to this as a vostro account (what is owed by it to the other: a liability). Bank A will maintain a mirror image record of the same account, known as a nostro account (what is owed to it by the other: an asset). (Any retail banking customer who notes credits and debits to, and keeps a running balance of the state of, his or her bank account is unknowingly maintaining a nostro account.) So the latter is simply a suspense account, used for reconciliation. The position is not in principle different for international transfers, though it is more complicated, because there are often more correspondent banks involved, and more than one possible applicable law: ibid, paras 3-014 – 3-017. Most such transfers are instituted, verified and recorded by the SWIFT messaging system: ibid, paras 3-008 – 3-012. That was used in the present case. (However, SWIFT is not itself a payment system.)

In the present case, the respondent instructed its bank, UniCredit Serbia, to make the payment to Zdena Fashions Ltd. What UniCredit Serbia appears to have done was (i) to debit the respondent’s account with it for the required sum, and (ii) to instruct UniCredit SpA (its Italian parent company) to debit UniCredit Serbia’s account with UniCredit SpA and credit an appropriate correspondent bank for the same sum with a view to an onward credit to the applicant, with whom Zdena Fashions Ltd had an account. UniCredit SpA in turn appears to have instructed Barclays (i) to debit UniCredit SpA’s account with Barclays and (ii) to credit the applicant’s account with Barclays. Barclays in its turn credited the applicant’s account with it, and the applicant credited Zdena Fashions Ltd’s account with the applicant, by issuing “electronic money” to Zdena Fashions Ltd. (In fact, the transactions involving Barclays were carried out by different companies in the Barclays Group, but nothing turns on that.)

As an EMI, the applicant was obliged under the Electronic Money Regulations 2011, regulation 20, to safeguard (“ringfence”) the credit which it received from Barclays. It did so by segregating the credit in its euro bank account at Barclays Frankfurt. Here it was protected against set-off by Barclays, and could not be mixed with other funds held by the applicant. However, the applicant’s euro account with Barclays Frankfurt did not hold only this one credit destined for Zdena Fashions Ltd. It held oter euro credits destined for the applicant’s customers. It was therefore what is commonly called a “mixed” account (though that is a misleading term, because there was only ever a single chose in action at any time, namely of the whole balance owing by Barclays to the applicant).

There is a further complication. The credit was denominated in euros, but Zdena Fashions Ltd’s outgoing payments were denominated in sterling. From time to time, therefore, the applicant’s safeguarded euro account with Barclays Frankfurt was debited, and its safeguarded sterling account was credited with the equivalent in the latter currency. But this did not happen transaction by transaction. It was done at times to suit the applicant’s treasury operations, that is, in batches. So it appears to be impossible directly to link (i) credits into the euro safeguarding account with (ii) specific transactions carried out by Zdena Fashions Ltd and the associated debits on its sterling account with the applicant. Instead, and pending the next debit/credit between the two safeguarding accounts, the sterling transactions by Zdena Fashions Ltd will have been temporarily covered by other “funds” in the sterling safeguarded account.

The development of the law of unjust enrichment in England and Wales in the last half-century or so owes much to a small number of lawyers, mostly academic, who wrote about, taught and debated the subject in the last third of the twentieth century. The first edition of the first textbook, The Law of Restitution, by Robert Goff (later Lord Goff) and Gareth Jones, was published in 1966 (although, since the eighth edition of 2011, it has been called The Law of Unjust Enrichment). It opened with the words:

In a preface to Roberts Stevens’ recent book The Laws of Restitution (2022), Lord Reed said that:

All this academic work proved influential, and judges began, perhaps hesitantly at first, to speak the language of restitution and unjust enrichment. In Lipkin Gorman v Karpnale Ltd [1991] AC 548, 578 C-E, Lord Goff said:

In Portman Building Society v. Hamlyn Taylor Neck (A Firm) [1998] 4 All ER 202, Millett LJ (with whom Morritt and Brooke LJJ agreed) said:

Some twenty years later, in Investment Trust Companies v HMRC [2018] AC 275, SC, the question again arose whether the claimants had a claim in unjust enrichment against the defendants. Lord Reed (with whom all the other judges agreed) said:

It is however important to note that Lord Reed went on later in his judgment to add these comments:

I note in particular the references to the “wisdom of our predecessors” and the doctrine of precedent, as well as the continued “necessity for a careful legal analysis of individual cases”. These references seem to me to be particularly important in the present case.

The first question is whether the payee (the applicant) has been “enriched” for the purposes of the claim in unjust enrichment. ‘Enriched’ and ‘enrichment’ as cognate concepts are however not just ordinary English words but instead terms of art, or technical legal terms: Crown Prosecution Service v Eastenders Ltd [2015] AC 1, [100].

The applicant’s account with Barclays was credited with the value of the payment. At the same time the applicant credited Zdena Fashions Ltd’s account, issuing electronic money to its customer, so that it could make payments as it wished, backed by the credit in the applicant’s account with Barclays. On the face of it, the incoming credit to the applicant is balanced by the obligation undertaken to its customer, Zdena Fashions Ltd. The applicant says that this is sufficient to prevent enrichment for the purposes of the claim in unjust enrichment. The respondent denies it. As a fall-back, the respondent also says that the applicant nevertheless profited, because it would have the use of the money before it was used, and, if the credit had been safeguarded in low risk investments (as was permitted under the regulations, but in fact was not done) the applicant could have earned a return on them. In this context it is to be noted that the applicant’s obligation to redeem the electronic money spent was a call obligation, operating 24/7, and not a term obligation, requiring repayment only at a known future date.

It is common ground that the funds were dissipated within a day of receipt. So any interest that might have been earned (by a bank) by lending to third parties would have been tiny. The unchallenged evidence is that the applicant earned fees of about £3,000, largely on currency conversions.

There is a further point, arising from the fact that the applicant is an EMI and not a bank. Funds paid to a bank for the account of its customer pass, and beneficially belong, to the bank. They are not held on trust for the customer: Foley v Hill (1848) 2 HLC 28. The bank instead owes a debt to its customer. However, it is free (subject to capital control rules) to use the funds which have passed to it beneficially for its own purposes and benefit, eg by lending them to other customers, or investing in other companies. On the other hand, an EMI is required by regulation 20 of the 2011 Regulations to do one of three things to safeguard the customer’s “money”. One (reg 21(2)(a)) is to keep the funds paid to the account of its customer in a segregated account with an authorised credit institution, which it cannot access except to pay on the instructions of its customer (which it obtains by issuing “electronic money” to the customer, which is then used in the customer’s transactions with third parties). A second (reg 21(2)(b)) is to invest the funds in secure, liquid, low-risk investments, again held segregated with an authorised custodian. A third (reg 22) is to obtain a guarantee or insurance cover for the risk of the EMI’s insolvency. If it does the first or second, it can profit by any return it can make on the deposit or the investments. If it does the third, it can also lend the customer’s funds out or invest them just like a bank.

The applicant’s business terms referred only to the first two methods. But, as I have already said above, the payment in the present case was covered by the first method only. No low-risk investments were purchased with the funds received. The applicant says its position is distinguishable from a bank, because the funds are not available for its general use. In this respect, it says, the position is analogous to that of a trust account. Just as money paid into a trust account (eg a solicitor’s client account) does not belong in equity to the solicitor, so money in the segregated account held by an EMI is not available to it for its own use. I will return to this point later, after dealing with the position of recipient banks generally.

I was referred to a number of authorities bearing on the question of enrichment. The respondent relied in particular on the decision of Marcus Smith J in High Commissioner for Pakistan in the United Kingdom v Prince Muffakham Jah [2020] Ch 421, which referred to earlier authorities of long standing, dating back to the eighteenth century. That was a case where a claim was brought against a bank in respect of a payment made to it earlier, on a number of bases. One of those bases was unjust enrichment. The bank argued that it had not been enriched, because the value of the payment to the bank was balanced by the value of the obligation to its customer.

Marcus Smith J said (words in square brackets taken from footnotes to the judgment):

In expressing the view that an agent who merely credited, but did not pay, his principal remained liable to the payer, the judge added this by way of footnote (at the point in his judgment which I have marked by an asterisk):

I will not take time in this judgment to go through all the authorities referred to by Marcus Smith J. However, it is pertinent to notice that of these authorities one (Continental Caoutchouc and Gutta Percha Co v. Kleinwort, Sons & Co) is a decision of the Court of Appeal, and two (Kleinwort, Sons & Co v Dunlop Rubber Co, and Kerrison v Glyn, Mills, Currie & Co) are decisions of the House of Lords. These decisions were binding on Marcus Smith J, as they are binding on me, for whatever they decide. In each of them funds were credited to a third person’s bank account by mistake, and the payer sued the bank to recover the mistaken payment. In each case the bank had not yet paid away any funds to its customer or on the customer’s instructions. In each case the claim against the bank succeeded. Had there been no enrichment of the banks in question, because of the liabilities said to be incurred towards the banks’ own customers, the claims would all have failed.

This point is clearly stated in Kerrison v Glyn, Mills, Currie & Co, where Lord Mersey (who, as Bigham J, had given the first instance judgment affirmed on appeal in Continental Caoutchouc) said (at 472):

This opinion was followed by Sargant J in Admiralty Commissioners v National Provincial and Union Bank (1922) 127 LT 452. This case was not cited to me in argument, but I came across it subsequently, and asked the parties for their comments, which both counsel kindly supplied. In that case, the plaintiffs had paid salary into the bank account of an airman who, unknown to them, had been killed in action during the Great War. When they eventually discovered their mistake, they claimed to recover the overpayments. The bank argued that the representative of the deceased’s estate needed to be joined in order properly to constitute the action.

Sargant J disagreed. He said (at 127 LT 453):

Mr Pavlovich for the applicant seeks to distinguish that case. He says that the only question for the court was whether the deceased customer’s personal representative needed to be a party to the claim.  The court’s conclusion was that he did not. He also says that there was no attempt to recover any money paid out of the account before the claim was made.  In this respect he refers to the report of the same case in volume 3 of Legal Decisions Affecting Bankers at page 260. However, here, he says, the claim includes money paid out of the account before the claim was made. Finally, he says that the bank conceded that a mistaken payment to an agent was recoverable provided “the principal was informed of it”.  No such concession is made here.

The first point is correct, but does not assist the applicant. The question here is simply whether the respondent payer can recover from the applicant bank. The bank’s customer is not a party here, just as he was not in the Admiralty Commissioners case. As to the second point, there is no statement in the Law Times report that there was any payment out of the account before the claim was made. On the other hand, the report in Legal Decisions Affecting Bankers says that £440 was paid in by mistake, but the plaintiffs claimed only the £417 10s and 3d remaining to the credit of the account. But, in any event, this is not a tracing claim, but one in unjust enrichment. It is personal, not proprietary. The claim was to the balance of the account, meaning (at best) that the plaintiffs accepted that the bank had a defence if it had paid out without notice. The third point is correct, but in my opinion the concession was rightly made, and hence the point is irrelevant.

On the other side, the applicant relied on more recent statements of the law. In Jeremy D Stone Consultants Ltd v National Westminster Bank plc [2013] EWHC 208 (Ch), [241]-[243], Sales J said:

Three things will be noted from this extract, which is in fact obiter rather than part of the decision. The first is that Sales J has two separate points to make. One is the lack of enrichment (at [242]). The other is the availability of the defence of payment to (or on the instructions of) the principal (at [244]). In the older authorities, the two points are run together. I will return to this aspect of the matter later. The second is that, in dealing with the defence, Sales J refers to an obiter statement in the decision of the Court of Appeal in Portman Building Society v Hamlyn Taylor Neck (A firm). Curiously, however, this decision was also relied upon by Marcus Smith J in the Pakistan case. The third is that none of the further authorities relied on by Marcus Smith J in the footnote to his judgment in the Pakistan case was referred to by Sales J. We are not told whether any of them were cited to him in argument, but I cannot think that they were. If they had been, he would have dealt with them. This must weaken the force of the judge’s opinion, because I do not know how he would have reacted to these authorities.

In passing, I note that it has been suggested that the view of Sales J was one expressed per incuriam. Although it is rather technical, I will just mention here that that is not what I understand the doctrine of per incuriam to be about. In Broome v Cassell & Co Ltd [1972] AC 1027, Lord Diplock said, at 1131D:

To return to the decision in question, Sales J refers to two other modern decisions in support of his view, one English and one Scottish. These are Box v Barclays Bank Plc [1998] Lloyd’s Rep Bank. 185 and Compagnie Commercial Andre SA v Artibell Shipping Co Ltd 2001 SC 653. I will deal with each of them briefly. In Box v Barclays Bank plc [1998] Lloyd’s Rep Bank 185, a company (Sylcon) carried on an unlawful deposit-taking business, pooling funds from investors in an account held by the company with Barclays Bank. That account was in overdraft at all material times. The company became insolvent. The investors claimed the return of their funds from the bank. The main part of the investors’ case was that there was a trust of their funds. However, there was a subsidiary argument in unjust enrichment.

As to this latter argument, Ferris J said:

What the judge says is that the arguments have “considerable substance”, but not that he so decides. This is because his decision is founded on a different point, referred to in the second paragraph above: “what reached the Bank was Sylcon's money, not the plaintiffs'.” Accordingly, his comments on enrichment are at best obiter dicta. More importantly, it also appears that, once again, none of the earlier authorities on the point was cited to the judge.

Compagnie Commercial Andre SA v. Artibell Shipping Co Ltd, 2001 SC 653 is a decision of the Outer House of the Court of Session in Scotland (functionally equivalent to the High Court in England). In that case, a ship charterer paid sums to the credit of the ship owner’s bank account. When the voyage was abandoned, the charterer sought to recover advance freight from the bank. One part of the claim made was in unjust enrichment (the condictio causa data causa non secuta, similar to our claim for money paid on a total failure of consideration), and the question arose as to whether the bank had been “enriched”. The charterer argued that the owner had assigned its right to freight to the bank, and hence the bank received the payment as principal. The bank said the assignment was by way of security only, and that the bank received the payment as agent for the owner.

Lord Macfadyn said:

Accordingly that part of the claim as against the bank failed. Undoubtedly, the lack of enrichment of the bank is part of the reasoning of the decision of the court. But it is the decision at first instance of a Scottish court, in relation to the Scottish doctrine of unjustified enrichment, and hence, although worthy of respect, not binding upon me. In addition, the judge (understandably) does not deal with any of the older English authorities, though, as I understand the modern Scottish practice, the emphasis today is in any event more on principle rather than on the discussion of authorities. What all this does mean is that I cannot treat this decision as of any great weight in reaching my own decision here in England.

In Sixteenth Ocean GmbH v Société Genérale [2018] EWHC 1731 (Comm) the defendant was one of a syndicate of banks financing the construction of container ships for subsidiaries (including the claimant) of an Iranian state enterprise, by the Korean company Hyundai. The defendant was also the agent bank for the syndicate. In 2008 US sanctions against Iran meant that the defendant could not continue to finance the construction. That in turn meant that the claimant could not pay Hyundai, and so Hyundai terminated the contract. The defendant bank claimed accelerated repayment of large sums of outstanding loans. In September 2010 certain of the ships built by Hyundai for other subsidiaries of the Iranian state enterprise were arrested in Singapore at the behest of the lending banks.

On 14 December 2010, the subsidiary companies somehow managed to pay sufficient money to the defendant as agent bank for the release of the ships. The claimant argued that the accelerated payment was not due, but paid sufficient to cover it nonetheless, under protest that it was obtained by economic duress. Because of the European Union’s sanctions regime, the payment was made into a special suspense account belonging legally and beneficially to the defendant. It was not (nor could lawfully have been) then appropriated to the discharge of any of the claimant’s possible liabilities. The funds were eventually paid out by the defendant in January 2011 to the various banks (including itself) once authorisations had been obtained from the relevant European authority, without which the payments would have been unlawful. The arrested ships were then released.

In January 2017 the claimant started proceedings in London to recover the accelerated payment on the basis of unjust enrichment. The defendant bank applied to strike out the claim, or alternatively for summary judgment, on the grounds that the claims were time-barred. If the claim accrued before 10 January 2011, it was potentially time-barred (subject to the operation of section 32(1) of the Limitation Act 1980). The question was whether any enrichment of the defendant had occurred on 14 December 2010, or only once payments out were made to the syndicate banks (including itself) in January 2011.

The deputy judge, Peter MacDonald Eggers QC, said:

However, the judge in that case went on to hold that:

The applicant also relied on a summary statement of the law given in FII Group Test Claimants v HMRC [2021] 1 WLR 4534, SC, [170]-[172]. This was a case where taxpayers claimed the repayment of tax paid under the advance corporation tax (“ACT”) regime as applied to non-resident companies, but held subsequently to be contrary to EU law. The question in this part of the case was whether the Revenue had been enriched for the purposes of the claim in unjust enrichment. The Revenue said not, on the basis that tax credits had been made available to the shareholders of the taxpayer companies, which netted off the incoming tax.

Lord Reed and Lord Hodge (with whom Lords Briggs, Sales and Hamblen agreed) said this:

However, the court held (at [190]) that the Revenue’s position was wrong. The tax credit was triggered, not by the liability to pay ACT, but instead by making the distribution. Thus,

Finally, in Scenna v Persons Unknown [2023] EWHC 799 (Ch), [61]-[62], deputy judge James Pickering KC in a claim alleging fraud made without notice orders against a series of defendants including freezing orders against the alleged fraudsters and disclosure orders against the foreign banks alleged to have received the fruits of the fraud. On the return date, inter partes, there were challenges by the banks, both to (i) the disclosure orders and to (ii) the jurisdiction of the English court. Within the jurisdiction challenge, the question arose as to the claimant’s alleged cause of action against the banks in unjust enrichment. All that the banks concerned had done was to receive the funds sent for the account of their customers.

The deputy judge held that this part of the claim failed:

Most of the recent pronouncements on the matter are at first instance and in addition are obiter. Even where they represent part of the decision, they do not even mention, let alone deal with, the older English authorities on the point. It might be thought that the older authorities are dealing only with the question of defences, and not with that of enrichment. But that is not so. If there is no enrichment, then there is no need to consider any defence. Yet the earlier authorities, and in particular those in the Court of Appeal and the House of Lords (Continental Caoutchouc and Gutta Percha Co v. Kleinwort, Sons & Co, Kleinwort, Sons & Co v Dunlop Rubber Co, and Kerrison v Glyn, Mills, Currie & Co), proceed on the basis that there is an enrichment. Indeed, Lord Mersey in Kerrison, and Sargant J in Admiralty Commissioners v National Provincial and Union Bank, expressly says that the bank’s becoming the debtor of the customer is not an answer to the claim, at least unless and until it is proved that the bank has paid away the money in accordance with the customer’s instructions and without notice of the payer’s claim.

As a matter of authority, I am in no doubt that, sitting at this level, I am bound by the decisions of the Court of Appeal and House of Lords already referred to. To the extent that there is a conflict between those decisions and the obiter statements in the recent first instance decisions and in the Supreme Court, I must decline to follow the latter. Even if I were wrong, and the earlier decisions were not actual decisions binding me, I nevertheless consider that they express the correct principle, and I prefer them.

The problem, as it seems to me, is this. The academic lawyers who fashioned the modern common law claim in what is now called “unjust enrichment” rather than restitution, divided it up into the several elements of (a) enrichment, (b) at the expense of the payer, (c) which is unjust, (d) without any applicable defences. As a former academic lawyer myself, I know how tempting it is to try to break down caselaw decisions into elements. But the English cases where a mistaken payment is made to an agent (including banker) of the principal, and the agent may, or may not, have accounted to or paid off the principal, may have been misanalysed along the way.

The binding English authorities referred to by Marcus Smith J make clear that, if by the time of the claim the agent has already accounted to or paid off the principal, without notice of the claim, the agent has a defence. But not otherwise. Where the agent has merely credited the principal, but not yet acted upon it, there is no reason why the agent should not repay (wiping out the credit to the principal), any more than there is any reason why the principal should not repay if it is sued instead of the agent. The Court of Appeal is particularly clear on this in Portman Building Society v Hamlyn Taylor Neck (A Firm). By splitting up the cause of action into too many parts the illusion has been created that there is a separate question, in principal and agent cases, to be answered as to “enrichment”, when that question is inherently tied up with the question whether the agent has a legal excuse for not obeying the instructions of the principal as to payment elsewhere. But, if the agent has such an excuse, there is no countervailing liability. And yet that is what the earlier English cases hold. The agent required to reverse a mistaken payment is released from any liability to account to its principal for the payment.

I referred above to the further point raised by the applicant, that its position as an EMI is distinguishable from that of an ordinary bank. A bank can make use of its customer’s funds. An EMI can do so only subject to additional restrictions or conditions. The applicant drew an analogy with trust accounts. An EMI account is not a trust account. The effect of the 2011 Regulations is not to create a trust for the benefit of customers holding electronic money: “mere segregation is insufficient to create a trust” (Re Ipagoo LLP [2022] Bus LR 311, [64], CA).

Nevertheless, the applicant submits that an EMI cannot be enriched by receipt of the segregated money. Just as solicitors are not enriched by receipt into the firm’s client account of client money, because they do not receive it for their own use and benefit, so too an EMI is not enriched by receiving payments in its segregated account for the account of its customer, because it cannot use the money for its own use and benefit. I reject this submission, for the following reasons.

If the account is held on trust, it is obvious that the trustee receiving a payment into it is not “enriched”, as Millett LJ said in the Portman case. It is a trustee, after all. But, if the account is not a trust account, where the funds are held on trust for the customer, the beneficial interest in those funds must be in the EMI. Indeed, the applicant accepted in its defence in this case that it was the beneficial owner, at [32](2). But the fact that the legal and beneficial owner of the money in the segregated account is required by law to safeguard it in one of three ways (but has the choice as to which to employ) does not mean that it ceases to be the EMI’s own money, or that it is not thereby enriched. It has more beneficially owned assets after the payment than it had before. Moreover, an EMI can properly profit from holding the money in several ways, including keeping any interest paid on the segregated account (though in this case apparently there was none). If it insures the deposit it can do what it likes. Indeed, the applicant accepts that it did nevertheless manage to use and profit from the incoming payment. It received fees amounting to about £3,000.

In my judgment there is no sufficient distinction to be drawn in the context of this claim between an ordinary bank and an EMI.

So the position of the applicant is in this respect the same as for an ordinary bank. As to that, the question whether there is an enrichment, in principal and agent cases, can be answered only by answering a further question, which is part of the question whether the applicant has a defence. But in the present case that question is for later. What that means is that, since the question of defences is not to be dealt with as part of this summary application, I cannot at this stage hold that the applicant has not been enriched. That must await the trial, if there is to be one. Indeed, in terms of the first question, the answer on the authorities must be that the applicant has indeed been “enriched”, in the special, technical sense in which the question is formulated. Accordingly, the applicant cannot succeed on this first ground.

I turn therefore to the second question. In Investment Trust Companies v HMRC [2018] AC 275, SC, the claimant investment trust companies engaged investment managers, who charged for their services and in addition (and in accordance with the then UK legislation) charged VAT at the standard rate, which the claimants paid. The managers accounted for VAT to the defendants in the usual way, that is, by netting off input tax against output tax and paying over the balance. Subsequently the Court of Justice of the European Union decided that such supplies should have been exempt from VAT. The investment managers claimed repayment of the VAT mistakenly paid under section 80 of the Value Added Tax Act 1994. Repayments were made, but only for the net amounts paid to the defendants by the managers and only for those periods which were not statute-barred. Those repayments were passed back to the claimants, but there was a shortfall, and the claimants brought the present claim for the balance.

An important aspect of the case relates to the netting off of input tax against output tax. So I reproduce here two extracts from the judgment of Lord Reed (with whom the other judges agreed) which makes the matter clear:

Thus, when it came to refunds by the defendants to the managers,

I have already quoted from the judgment of Lord Reed in this case, in dealing with the four questions posed by Lord Steyn in the Banque Financière case. In relation to the question which arose on the facts of the Investment Trust Companies case, as to whether a payment had been made to the defendant “at the expense of the claimant”, Lord Reed said this:

On the facts of that case, Lord Reed concluded:

The applicant in the case before me says that any enrichment it obtained from the payment was not “at the expense of” the respondent, as understood in the present law of unjust enrichment. It is common ground that there was no direct transfer of funds between the parties, within paragraph 46 of Lord Reed’s judgment. The funds were transferred indirectly, as set out above (at [20]). The respondent therefore relies on both the agency and the “set of co-ordinated transactions” cases of indirect transfers that are to be treated as if they were direct transfers, referred to by Lord Reed at paragraph 48 of his judgment. The applicant says that neither of these applies. In support of this submission, it relies on the decision of HHJ Bird, sitting as a High Court judge, in Tecnimont Arabia Ltd v National Westminster Bank plc [2023] Bus LR 106, [2023] 1 All ER Comm 57. It is appropriate that I begin with a consideration of this decision.

The claimant was induced by an “authorised push payment” fraud to instruct its own bank in Saudi Arabia to pay US$5 million to an account held by a third party with the defendant bank in London. The transfer was effected on 30 October 2018 by a series of interbank transactions conducted by SWIFT messages. First, the claimant’s own bank, Saudi British Bank SJSC, issued a payment order to Citibank in the USA, requiring it to pay the funds to the defendant bank in London for the specific account of its own customer. Saudi British Bank would debit the claimant’s account with the same sum. Next, Citibank would pay the defendant, and would then debit the account of Saudi British Bank with itself. But no cash moved. Instead, accounts were credited and debited along the journey. The claimant’s account with Saudi British Bank was debited, thus enabling Saudi British Bank’s account with Citibank to be debited, thus enabling the account between Citibank and the defendant to be credited, and thus enabling the customer’s account with the defendant to be credited. The payment mechanism was in principle the same as in the present case, as described earlier in this judgment (at [19]).

After discovering the fraud, the claimant brought a claim against the defendant bank. However, by then the funds had almost all been paid out from the customer’s account. (There were some 29 payments out between 30 October and 1 November 2018.) The claim was made in both (i) unjust enrichment and (ii) knowing receipt of trust property. The judge tried the claim, hearing the witnesses, and eventually gave a reserved judgment dismissing it. It was not a summary hearing of the kind that took place in the present case, but a full trial. The judge held that the knowing receipt claim failed because the relevant property was not trust property at the time of receipt. The judge further held that the unjust enrichment claim failed because the payment was not “at the expense of” the claimant.

As to the latter point, the judge referred to and set out paragraphs 41 and 42 of Lord Reed’s judgment in Investment Trust Companies v HMRC. I reproduced these earlier in this judgment (at [28]). The judge then said this:

The judge then summarised paragraphs 43 onwards from Lord Reed’s judgment, including the examples of indirect dealings leading to a transfer of value in paragraphs 48-49. He then considered the cases of Banque Financière de la Cité v Parc (Battersea) Ltd [1999] 1 AC 221 and Bank of Cyprus UK Ltd v Menelaou [2016] AC 176, as examples (as the judge put it at para 116) “of cases where a series of co-ordinated transactions is treated (as a matter of ‘transactional reality’) as a single scheme or transaction so there can be said to be a ‘transfer of value’ between the claimant and defendant”. Next he considered the decision in Investment Trust Companies v HMRC itself as a case where there was no such series of co-ordinated transactions.

Then he summarised the decision of the Supreme Court, as follows:

Having considered the submissions in this case in more detail, HHJ Bird set out a number of factors which he considered that he should take into account, as follows:

Finally, HHJ Bird expressed his conclusions on the question of “at the expense of the claimant” as follows:

I was told that that decision has not been taken on appeal. So, I deal with it as it is. I begin with the last point, that a “conclusion that the Bank was enriched ‘at the expense of’ the claimant would be contrary to the decision in ITC”. I regret to say that I cannot agree. The Investment Trust Companies case was one concerned with the operation of the statutory scheme for charging, collecting and accounting for VAT, as explained by Lord Reed in his judgment (especially at paras 6 and 8). It had nothing to do with international (or indeed domestic) bank transfers of funds. No doubt the principles applicable to the ‘at the expense of’ question in that case can and should be applied to other cases, including this one (and that was the purpose of Lord Reed in his judgment). Nevertheless, I cannot help thinking that the very different context in which the Supreme Court had to decide the question has been lost sight of in considering the case of a bank transfer carried out by account set-offs.

The first point is that Lord Reed in his judgment (at para 72) notes the first instance judge’s rejection of any agency argument, ie that the investment managers by accounting to HMRC for their own liability for VAT were somehow acting as the companies’ agents to pay the companies’ VAT liability. Plainly such an argument would have been hopeless, and Lord Reed noted that the companies did not appeal against that dismissal. The companies paid VAT to the managers because they had contracted to do so (though under a mistake as to the lawfulness of the charge). Their liability was to the managers, and not at all to HMRC. The managers’ liability to account to HMRC arose by statute, and depended on the nature of the business they did (not just with the companies), how much of it they did, and also (crucially) their own input tax paid to third parties. If the managers failed properly to account for VAT to HMRC, that failure could not be attributed to the companies. A decision that an international bank transfer effected through a correspondent bank was within Lord Reed’s agency exception would not be inconsistent with the actual decision in that case.

Turning to the question of a series of co-ordinated transactions, it is relevant to notice that, in the Investment Trust Companies case, the way in which the managers accounted for VAT to HMRC meant that it could not be said that anything paid to the managers would cause a payment to HMRC in the future. Indeed, there might never be anything due from the managers to HMRC. All would depend, as I have said, on factors outside the companies’ control, including the amount of input tax paid by the managers for goods and services supplied to them by third parties. By contrast, with an international bank transfer, the whole point of the customer’s initial instruction to its bank was that there should be a credit at the end of the line to a particular third party, which credit would be equal to the value of the debit at the start (save for the addition of any fees charged). That initial instruction can fairly be said to “cause” the credit at the end, at least in a “sine qua non” sense (and probably in others too). In my judgment, a decision that an international bank transfer effected through a correspondent bank was within Lord Reed’s “series of co-ordinated transactions” exception also would not be inconsistent with the actual decision in that case either.

So, I should consider afresh the principles laid down by the Supreme Court in the Investment Trust Companies case and apply them to the facts of this one. As I have said earlier, I proceed for the purposes of this summary application on the assumption that the respondent will be able to prove its pleaded case at trial. On that basis, I am, first of all, in no doubt that the applicant was “enriched” (in the relevant sense) by a benefit which it gained as a result of the instruction given by the respondent to its own bank, and which instruction caused the respondent a loss of the same value. This was discussed earlier (at [30]-[66])

Secondly, this was not a direct transfer of value from the respondent to the applicant. So, in order to decide whether any enrichment was at the expense of the respondent, I must consider whether either of the two exceptional cases of indirect transfer submitted by the respondent (agency and series of co-ordinated transactions) applies. First, there is agency. Here the respondent instructed its own bank to make the transfer to a specific account with the applicant. It did not care how the bank did this, even though it did not expect the bank to send a bullion van from Serbia to London containing gold or banknotes. If it had thought about it, it would no doubt have supposed that a correspondent bank or banks would be involved. But those were matters for the bank to organise. That was what it paid the bank to do. The end result desired was the credit to the specific account in London, and that was all. The bank then organised it, and the end credit was made.

To my mind, this is a classic case of agency. The fact that the same banknotes or other chattels are not passed from hand to hand along the way from Serbia to London, or swapped for gold at some point is irrelevant. This is not a tracing case. If A puts B in funds with a direction to pay C, intending no trust of the money, so that B is in the meantime entitled to use the specific payment for B’s own purposes, and B then pays C out of B’s own funds, no one can doubt that A has paid C by the agency of B. Commercial agents do this every day: see eg the well-known case of Henry v Hammond [1913] 2 KB 515. And it can make no difference how many agents are involved along the way.

The applicant says it might be different if this had been a domestic CHAPS (“Clearing House Automated Payments System”) payment, where the payer’s bank and the payee’s bank (or in either case its clearing house settlement partner) both have accounts at the Bank of England, and settlement is effected by crediting and debiting their respective accounts with that bank. I disagree. The mechanism is in principle the same as for SWIFT transactions, ie debiting and crediting accounts, just with fewer steps. So, the legal treatment should in principle be the same. This is not a case of “taking a broad view of economic reality”, as the respondent submits. It is one of looking at the only transaction intended by the respondent, ie to transfer funds from its account with its bank in Serbia to that of Zdena Fashions with the applicant in the UK.

The respondent’s alternative submission is that this constitutes a series of co-ordinated transactions. Again, the respondent instructed its own bank to make the transfer to a specific account with the applicant. The bank arranged for this to happen through its correspondent bank and indirectly through the correspondent’s own correspondent. The transactions to achieve this end were co-ordinated and they formed a series. If any of them had failed, the end result would not have been produced. The applicant argues that “the funds at each stage came from multiple parties, not a single provider … depending on the other transactions processed by the banks on the same day”. I do not see how that can be established without a trial, but, even were it so established, I do not think it matters, for the reason given above in relation to agency.

The applicant once more says that it would or might be different if this had been a domestic CHAPS payment. Once more, I disagree. The same idea of debiting and crediting accounts is being used in both cases. Inserting more steps in the chain does not make use of a different idea. And, once again, this is not about a “broad view” of economic reality. It is about connecting the intermediate steps that lie between the debit at one end of the chain and the credit at the other. In my view they were both connected and co-ordinated.

In my judgment, whether one looks at this case as one of agency or simply (if this is different in this case) a series of co-ordinated transactions, either way it involves an enrichment of the claimant at the expense of the respondent by indirect transfer sufficient in principle to satisfy the doctrine of unjust enrichment, subject to questions of “unjustness” and any possible defences, which can be determined only at trial.

That conclusion leaves me with the problem of the application of the rules of precedent. In Police Authority for Yorkshire v Watson [1947] KB 842, Lord Goddard CJ, sitting in the Queen’s Bench Divisional Court (with whom Atkinson and Lewis JJ agreed), said that:

That statement of the law has been followed ever since. And, in Willers v Joyce (No 2) [2018] AC 842, Lord Neuberger, with whom the other judges of a rare, nine-member Supreme Court, said:

Accordingly, I am not strictly bound by the decision of HHJ Bird in Tecnimont. But I should (and would) follow it for reasons of judicial comity unless convinced it was wrong. Unfortunately, I am so convinced, and I do decline to follow it, preferring my own analysis set out above. On my analysis, looking simply at the elements of enrichment and “at the expense of”, there is (at least) a real prospect of success within the meaning of CPR rule 24.3. In my judgment there ought to be a resolution of the claim only after a full trial and the complete facts are known.

In the result, therefore, I dismiss the application.